With an enterprise value of $1,100 million and annual interest expense of $20 million financed at a 10% cost of debt, what is the implied equity value, assuming no cash?

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Multiple Choice

With an enterprise value of $1,100 million and annual interest expense of $20 million financed at a 10% cost of debt, what is the implied equity value, assuming no cash?

The key idea is that enterprise value represents the total value to all providers of capital, while equity value is what remains after paying off net debt. With no cash on hand, net debt equals the total debt. From the given interest expense and cost of debt, the debt amount is 20 million divided by 0.10, which equals 200 million. Subtracting this debt from the enterprise value gives the equity value: 1,100 million minus 200 million equals 900 million. So the implied equity value is 900 million dollars. If cash were present, net debt would be debt minus cash, which could change the result, but with zero cash the calculation is straightforward.

With an enterprise value of $1,100 million and annual interest expense of $20 million financed at a 10% cost of debt, what is the implied equity value, assuming no cash?

Study for the Private Equity Interview Test. Prepare with a range of questions and expert explanations to ensure success in landing your dream role. Optimize your readiness for the interview process!

With an enterprise value of $1,100 million and annual interest expense of $20 million financed at a 10% cost of debt, what is the implied equity value, assuming no cash?

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